An Empirical Study of Capital Market Collapse in Bangladesh: 1996 & 2011

Abstract

The Bangladeshi Capital Market has experienced two big crashes since its inception. In 1996, the market was crashed because of a speculative bubble, whereas; it was an asset bubble in the year 2011. The stock price was overvalued this time. Price was inflated about 500-700 percent compared to the face value. DGEN Index scrambled at point 8918.51 on December 05, 2010 which signaled a steeper bubble. The study hypothesizes the present scenario of Bangladesh Stock Market through various quantitative and qualitative data which are extracted from the secondary sources. Quantitative data are gathered from the web site of Dhaka Stock Exchange and other qualitative data are collected from published research journals, newspapers, websites, etc. This study has discovered that, Gap between the Demand and Supply of stock, extraordinary over pricing of stock, market manipulation, lack of knowledge about the stock market mechanism among the general investors, price distortion, inefficient regulations, political unrest, etc. caused the crash of DGEN Index in the FY2011. Security and Exchange Commission (SEC) of Bangladesh and government should encourage more public limited companies to offer more shares to meet the current demands. In order to get back the confidence among the existing investors, regulatory body may introduce an Income tax rebate, Injection of Market Stabilization Fund, Mandatory holding certain percentage of shares among the board of directors, short term incentive packages etc. Moreover, this study showed the trends of some capital market exogenous variables like, market capitalization, market all share index, the market value of the transaction, Number of deal and inflation over the last ten years. Ordinary lease square method of log linear regression analysis was used to analyze the data.